Bahraini Gov’t Gives Up Oil Extraction: What’s the Future of “Historic Oil Discovery”?

2019-06-11 - 3:14 am

Bahrain Mirror (Exclusive): In an unprecedented step in the region, Bahrain announced on (June 2, 2019) allowing foreign companies to own 100% in projects of natural oil and gas extraction inside the country.

Although the decision affects the most significant national resource, the government didn't clarify the economic justifications that pushed it to take such a decision. It didn't explain either the expected revenues from opening the doors of investment so widely in the oil sector.

The government didn't discuss the decision with the Parliament, even though this decision sets the cornerstone of the privatization project of the main sector, whose current revenues account for more than 80% of the country's income. The decision came only two weeks after the legislation authority session was adjourned.

The government also did not provide details on the regulatory framework for investment and whether it would cover only extraction operations or the expansion of foreigners' investment operations to include manufacturing industries.

In another paradox, the decision comes one year after Bahrain announced discovering the largest field in the country's history. Bahrain's Crown Prince Salman bin Hamad announced on April 2, 2019 discovering the largest field in Gulf waters, west of the country.

Minister of Oil Mohammed bin Khalifa Al Khalifa announced later that the field contains a reserve that reaches up to 80 billion of shale oil, which gives Bahrain superiority over top producers such as Russia and the United States.

The announcement of allowing 100% ownership of foreign companies in extraction projects would raise technical questions about the possibility of commercial investment in the field, or at least the reasons for Bahrain's decision to give up a potential enormous resource.

The government promised its citizens greater welfare after the announcement, but its abandonment of investment in the allegedly discovered field reduces the chances of improving the living conditions of Bahrainis.

Bahrainis are deemed to be the lowest of income in the oil-rich Gulf states. A large number of people live below the poverty line, while the unemployment rate has reached more than 15%, according to international estimations.

Given the abandonment of direct revenues from the sale of oil, the government must provide clear answers about the indirect economic returns of the decision, such as creating jobs for Bahrainis, achieving financial stability and reducing public debt.

It is not clear, since the government abandoned the Bahrainization policy, whether the government will oblige foreign investors to employ Bahrainis in operational work.

More questions could be raised on whether the Bahraini government intends to impose taxes on investors in this field which is expected to generate large profits.

Such a decision should have relied on an inclusive study that answers these questions and others in terms of the economic and strategic effects it will have on the future of the country. What's even more important is informing the public opinion about the consequences of such a decision. However, the opinion of citizens, as usual, comes at the bottom of the government's list of concerns.


Arabic Version



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